Private mortgage lenders are an alternative to banks for those with a bad credit score or low income, but can also be used for those looking for debt consolidation or to borrow money for renovations. Private lenders can offer mortgages even to those with a low credit score or no income, however interest rates on private mortgages are significantly higher than mortgage rates offered by banks.
Ontario is home to the largest number of private mortgage lenders in Canada. In 2014, the total amount of mortgages by private lenders in Ontario was $6 billion. In 2017, this increased by 77% to $10.6 billion. In this three year period, brokerages in Ontario that conducted business with a private mortgage lender increased by 11%.
A private mortgage is one that is not lent out by a financial institution, such as a bank or credit union. Private mortgage lenders can either be mortgage investment corporations set up for the sole purpose of lending out money, or they can be individuals lending their own money. In Ontario, private lenders do not need a license, but they’ll need to work with a licensed mortgage broker. Since they are not regulated, they are able to offer a wider range of mortgages and are more flexible in their lending requirements.
If you are having trouble refinancing or renewing your mortgage due to a bad credit score, a private mortgage can be used as a temporary financing alternative (e.g. for one year) while you repair your finances. Private mortgages can also be used for other short-term uses, such as for debt consolidation, bridge loans, or flipping houses.
Private mortgages cater to borrowers that were denied a mortgage from a bank due to their income, debt levels, or credit history. They are also used for special circumstances, such as borrowing more money than a bank would allow and for quick access to funds.
In addition to first-lien mortgages, Ontario private lenders can also offer second mortgages and third mortgages. Since a second or third mortgage would mean that you would be borrowing even while you already have one or multiple existing mortgages, private lenders generally require you to have a low loan-to-value ratio (LTV) to begin with. You can then borrow more at a higher LTV with your private lender.
The lower your LTV, the more equity that you own in your home. Private lenders like to see low LTVs and high levels of equity. It can be difficult to get a private mortgage if your LTV ratio is already above 80%, as private lenders want to have some level of stake in your home, and this means that they will also charge higher interest rates. Since you will be putting up your home equity as collateral which secures the loan, Ontario private mortgage lenders generally accept borrowers with bad credit or low income.
Private lenders do more than just lend out mortgages. Buying land in Ontario is something that banks are reluctant to finance. This is especially true to raw land that has no utilities, road access, or structures. Private lenders in Ontario are much more willing to provide land loans for those that are looking to purchase land.
Private lenders often require you to present an exit strategy that details how you will repay the loan. For those looking to buy land, borrowers might be planning to develop the land and construct houses, or hold the land as an investment.
Private construction loans are used to finance the cost of construction of a home. Construction loans are short-term loans, often lasting for less than a year that can be renewed or extended during construction. The loan can be rolled over into a mortgage once completed. For self-build homes, a private construction mortgage offers temporary financing during construction and gives you time to secure a traditional mortgage from a lender that offers a lower mortgage rate. For builders of multi-unit properties, such as apartments, private lenders may be more willing to lend more money than banks.
Banks are best suited for those with regular income that can be easily documented. For those with foreign income or self-employment income, it can be difficult to purchase a home if you haven’t had the same income source for at least two years or more. Your income sources must also be well documented, such as being on your previous tax returns.
Banks have strict rules surrounding foreign income, and it can be difficult to use foreign income to purchase a home if you haven’t declared it in your Canadian tax returns. For those looking to purchase a home but have earned income in previous years in a foreign country, a private lender can be more flexible and can consider your foreign income when looking at your application.
Banks also require self-employment income to be verified. Some self-employed workers and business owners, such as those on commission sales, might find it difficult to document their self-employed income. This can include mortgage brokers and real estate agents. Their income might also be obscured from using tax deductions that reduce their net income.
Private lenders allow self-employed borrowers to use additional documentation to back-up their income claims, such as financial statements or bank statements, or to state an income that the lender will base their application on.
With Ontario making up almost half of MIC mortgages in Canada, it is no surprise that private lenders have a large presence in Toronto. In 2019, Government of Ontario estimates show that private lenders have increased their market share by 50% in Toronto in 2019, and now make up 10% of all mortgages in Canada.
|Lender||Physical Locations||Google Reviews|
|Canada Wide Financial||105 West Beaver Creek Road, Richmond Hill, ON.|
|Cannect Home Financing||81 Navy Wharf Court, Toronto, ON.|
|Castleton Mortgages||2 Bloor Street West Suite 3406, Toronto, ON.|
|CMB Canada Mortgage Brokers Inc.||3650 Langstaff Road Suite 275, Woodbridge, ON.|
|Credit Butler||5397 Eglinton Avenue West #210, Etobicoke, ON.|
|DV Capital Corporation||150 King Street West Suite #200, Toronto, ON.|
|Harbour Mortgage Corp.||36 Toronto Street Suite 500, Toronto, ON.|
|Homebase Canada Inc.||668 Millway Avenue Unit 11, Vaughan, ON.|
|Interfinance Mortgage Corporation||220 Sheppard Avenue West, North York, ON.|
|Mortgage Associates Ontario||20 Harrison Garden Boulevard, North York, ON.|
|Mortgage Central Canada||668 Millway Avenue Unit 11b, Vaughan, ON.|
|Mortgage Company of Canada||675 Cochrane Drive Suite 104, Markham, ON.|
|Mortgage Squad||201 Millway Avenue #17, Vaughan, ON.|
|Mortgage Truth||132 Commerce Park Drive, Barrie, ON.|
|Ross Taylor & Associates||70 East Beaver Creek Road #30, Richmond Hill, ON.|
|Secure Capital Group||28 Fulton Way Unit 8-201, Richmond Hill, ON.|
|The Mortgage Division||5025 Orbitor Drive Unit 200, Mississauga, ON.|
|Tribecca Finance Corporation||261 Sheppard Avenue West, North York, ON.|
|Tridac Mortgage||276 Danforth Avenue, Toronto, ON.|
|Xpert Credit||4030 Sheppard Avenue East, Scarborough, ON.|
From the City of Ottawa to Kanata, to Nepean and Orleans, private lenders in Ottawa operate throughout the National Capital Region. In a 2017 study by the Bank of Canada, Ottawa-Gatineau had one of the largest numbers of high-ratio mortgages in Canada.
In 2016, 67% of mortgages in Ottawa-Gatineau were low-ratio conventional mortgages, while 33% were high-ratio mortgages. In comparison, only 13% of mortgages in Toronto are high-ratio mortgages. Private lenders generally prefer to lend to those with a sizable equity in their home, which would exclude high-ratio mortgages.
|Lender||Physical Locations||Google Reviews|
|Capital Mortgages Kanata||260 Hearst Way #200, Kanata, ON.|
|Jason Anbara Ottawa Mortgages||291 Olmstead Street, Vanier, ON.|
|Mortgage Intelligence (Andrew Thake)||150 Isabella Street Unit 110, Ottawa, ON.|
|MortgageCaptain||349 McLeod Street, Ottawa, ON.|
|Ottawa-Carleton Mortgage Inc.||381 Richmond Road, Ottawa, ON.|
|SJC Financial||242 Main Street, Ottawa, ON.|
|Smart Debt Mortgages (Chris Allard)||150 Isabella St #110, Ottawa, ON.|
|The Mortgage Centre (Mortgage Brokers City Inc.)||788 Island Park Drive, Ottawa, ON.|
|The Wilson Team||174 Wild Senna Way, Ottawa, ON.|
|Wadhen Mortgage & Financial Services||224 Fergus Crescent, Ottawa, ON.|
|Westboro Investment Corp.||267 Richmond Road, Ottawa, ON.|
|Westrock Capital Corp.||Westrock Capital Corporation has no physical locations in Ontario.|
One benefit of private lenders is the ease of access and flexibility that they offer. In a 2019 report, the CMHC found that the Kitchener-Cambridge-Waterloo area has elevated levels of short-term investment activity in properties. 9% of all homes purchased between 2015 and 2018 were sold within two years for the purpose of short-term gains. Of non-local buyers who made these short-term investments, 72% of them were from the Greater Toronto Area (GTA).
Private lenders are an option for those looking to flip houses, but they are also an increasingly popular choice for all homeowners. Some private lenders and brokers in the Kitchener-Waterloo area include:
|Lender||Physical Locations||Google Reviews|
|AKAL Mortgages||202-120 Traders Boulevard East, Mississauga, ON.|
|Dominion Lending Centres (Tracy Valko)||1187 Fischer-Hallman Road #623, Kitchener, ON.|
|Mortgage InGenuity Kitchener||178 Victoria Street South, Kitchener, ON.|
|Mortgage Intelligence (Ben Melick)||17 Young Street East, Waterloo, ON.|
|Mortgage Intelligence (Jack Russell)||17 Young Street East, Waterloo, ON.|
|Mortgage Intelligence (Jesse Brun)||77 City Centre Drive, Mississauga, ON.|
|Mortgage Kings||2230 Lake Shore Boulevard West, Etobicoke, ON.|
|Presto Mortgages||34 Village Centre Place, Mississauga, ON.|
|The Mortgage Centre Kitchener-Waterloo||1120 Victoria Street North, Kitchener, ON.|
|Woodstreet Mortgage||483 Champlain Avenue, Woodstock, ON.|
Located two hours southwest of Toronto, London is an increasingly attractive option for GTA homebuyers looking for more affordable houses. 20% of all homes over $450,000 were purchased by GTA buyers in 2017.
Some private lenders in London and St. Thomas include:
|Lender||Physical Locations||Google Reviews|
|Bedrock Financial Group (Joe Walsh)||1935A Leslie Street, North York, ON.|
|CIR Mortgage Corporation||633 Wellington Street, London, ON.|
|Casb Management Group Inc.||395 Wellington Road, London, ON.|
|Dominion Lending Centres (Adriaan Driessen)||1 Commissioners Road East, London, ON.|
|Fast Mortgages||20 Harrison Garden Blvd, North York, ON.|
|Real Mortgage Associates (Dani Hanna & Ken Roberts)||204 Oxford Street West, London, ON.|
|Real Mortgage Associates (Justin McCallum)||243 Main Street, Glencoe, ON.|
The cost of a private mortgage will vary from lender to lender, which can be based on your income, credit score, and home equity. Private lenders usually charge a fee based on the amount being lent. This fee is usually around 2%. While a private mortgage will cost more than a conventional mortgage, they are usually only used as short-term temporary financing.
The average price of a home in Toronto was just over $1 million in February 2021. Toronto mortgage rates hovered around 2%, while private mortgage lenders in Toronto have rates of around 5% to 6% for first mortgages. Second and third mortgages have higher rates. Most private mortgages range from just a few months to a few years.
Let’s consider a $1 million house that a homeowner is looking to get a private mortgage for. The homeowner had been denied a renewal at a bank, but their previous mortgage payments have reduced their mortgage to $600,000. This reflects the mortgage portfolio of Atrium, a mortgage investment company (MIC), which has an average loan-to-value ratio of 60%.
MCAN, another MIC, has an average mortgage term of just over one year. Let’s say that the homeowner is only looking for a private mortgage with a one year term. After fixing up their credit, the homeowner is planning on switching back to a bank. How much will a private mortgage cost?
With a private mortgage of $600,000 that only requires interest payments at a rate of 6%, your total interest cost would be $36,000 over one year. Your monthly interest-only payment will be around $3,000. You can also expect to pay around $12,000 in private lender fees at a fee rate of 2%.
|Mortgage Amount||Term Length||Mortgage Rate||Total Interest Cost||Total Cost with Fees||Monthly Interest-Only Payment|
|$600,000||1 Year||As low as 6% + 2% Fees||$36,000||$48,000||$3,000|
In Ontario, private mortgage lenders doing business through mortgage brokers do not need to be licensed. Private lenders in Ontario who provide mortgages directly to the public must be licensed by the Financial Services Commission of Ontario (FSCO) and must display their FSCO license number on all materials and ads. They cannot advertise their services in Ontario. One way to get access to private mortgage lenders in Ontario is by going through a licensed mortgage brokerage. Since they are not regulated, they are able to offer a wider range of mortgages and are more flexible in their lending requirements.
Since you do not need to have a license to be a private lender in Ontario, all you need to become a private lender is money to invest.
Investing in private mortgages can be easy as purchasing the stock of a Mortgage Investment Corporation. You can also join a syndicate or directly lend to individuals looking to borrow.
Lawyers in Ontario will have to complete Form 9D and Form 9E if they represent a client in a private mortgage transaction. These forms document written instructions by the clients in the mortgage transaction.
Although Forms 9D and 9E are required if the lender is a private lender, these forms are not required if the lender is a bank, licensed insurer, trust corporation, or pension fund.
Lawyers can become a private lender for their clients, however, they cannot represent their client in that mortgage transaction.
Private mortgages have seen considerable growth over the past few years. In 2018 and 2019, the number of mortgage registrations by private lenders increased by double digits, while the Big Banks saw a decrease in the growth of mortgage registrations. Even though this growth reversed in 2021, the prevalence of private mortgage lenders in major urban areas such as Toronto and Ottawa have continued to increase.
Private mortgages are popular in Ontario in part due to the high prices of housing. Toronto’s housing market, along with other areas across the province, feature prices that many might call unaffordable. Private mortgages fill the gaps and are an alternative lender to the banks. Banks are required to conduct the mortgage stress test, which tests how well you can afford your mortgage.
As housing prices increase, it becomes increasingly harder to pass the stress test if your mortgage increases too. Private lenders do not use the stress test, which means you can be approved even if a bank says that you’re not able to afford a mortgage. This makes homeownership a possibility for many households, however, you’ll still want to make sure that your mortgage payments can be made comfortably.
For future homeowners looking to escape Toronto’s high housing prices, some might decide that they want to build their own home. Purchasing rural land to develop can be risky, which is why private lenders are usually one of your only options for vacant land loans.
The speed that private lenders can approve loans is also a large draw for home buyers. Having a private mortgage approved in as little as a day can allow home buyers to get financing for their homes quicker, which can make it easier to transact in Ontario’s hot housing market.
A Lenders are major banks, such as RBC and TD. You will get the best mortgage rates with A lenders, and you can also make low down payments with insured mortgages. A lenders are regulated by the government.
B Lenders include smaller lenders, such as credit unions, monoline lenders, and mortgage finance companies. This includes Meridian Credit Union, MCAP, and First National. B lenders can have slightly higher rates, but in some cases, they may have lower rates than the big banks. B lenders are also regulated by the government, and can offer insured mortgages.
Private lenders are the most flexible and lenient in their lending, but private lenders will always have higher mortgage rates than A lenders and B lenders. You can borrow more money from your equity than A lenders and B lenders allow, but you’ll pay higher rates and fees. Private lenders cannot offer insured mortgages and they’re also not regulated.
|Big 6 Banks||-13.0%||-9.4%||10.1%||13.8%|